Audit Evidence: What Auditors Look For

Audit evidence is the information used by an auditor in arriving at the conclusions on which the audit opinion is based.

Evidence may originate from:

The auditor evaluates whether the evidence obtained is sufficient and appropriate for the purpose of the audit.

Sufficiency generally relates to the quantity of audit evidence.

Appropriateness relates to the quality and relevance of the evidence, including its reliability.

Therefore, providing a large volume of documents does not necessarily mean that sufficient appropriate audit evidence has been obtained.

An audit opinion must be supported by appropriate audit work and sufficient evidence.

Audit evidence helps auditors assess whether:

For example, a company may record a significant receivable in its accounting system. The auditor may need to obtain additional evidence to determine whether the receivable exists, is recoverable and is appropriately presented.

Audit evidence therefore forms the foundation for the auditor's professional conclusion.

Auditors may obtain evidence using several different procedures.

Inspection

The auditor examines documents, records or physical assets.

Examples include:

Observation

The auditor observes a process or activity being performed.

Examples may include:

External Confirmation

The auditor obtains information directly from an independent third party.

Examples include:

Recalculation

The auditor independently checks the mathematical accuracy of calculations.

Examples include:

Reperformance

The auditor independently performs a control or procedure that was originally performed by the business.

Analytical Procedures

The auditor evaluates relationships and trends within financial and non-financial information.

Examples include:

Inquiry

The auditor obtains information by asking management and employees questions.

However, inquiry is generally considered alongside other evidence rather than automatically being sufficient on its own for significant matters.

Not all evidence has the same level of reliability.

Auditors consider factors such as:

Source of Information

Information obtained independently from external parties may provide stronger evidence than unsupported internal explanations.

Nature of the Evidence

Original documents and independently verifiable information may provide stronger evidence than informal explanations.

Control Environment

Information generated by a reliable accounting system and supported by effective internal controls may be more reliable.

Consistency

Evidence that is consistent with other audit evidence generally provides greater support for an audit conclusion.

Directness

Evidence obtained directly by the auditor through procedures such as inspection or observation can provide valuable support.

The auditor considers these factors when determining the nature and extent of audit procedures required.

Auditors generally look beyond whether a transaction has simply been entered into the accounting system.

They may consider:

For example, for a significant expense transaction, auditors may examine:

The exact procedures depend on the nature and risk associated with the transaction.

Revenue can be an important area of audit focus because of the potential risk of inappropriate recognition or cut-off.

Auditors may examine:

They may also test transactions around the reporting date to assess whether revenue has been recorded in the appropriate accounting period.

Businesses should therefore ensure that revenue transactions are supported by appropriate documentation and that revenue recognition policies are consistently applied.

For expenses, auditors may assess whether costs:

Common evidence includes:

Significant or unusual expenses may receive additional audit attention.

Bank balances are commonly supported through a combination of internal and external evidence.

Auditors may examine:

Auditors may also investigate:

Businesses should ensure that all bank accounts are reconciled before the audit begins.

Receivables

Auditors may consider:

They may also assess whether outstanding balances are recoverable.

Payables

Auditors may review:

The auditor may also perform procedures to identify liabilities that were not recorded at the reporting date.

For fixed assets, auditors may consider evidence relating to:

Supporting evidence may include:

Businesses should maintain an up-to-date fixed asset register that reconciles with the accounting records.

Certain financial statement balances cannot be determined solely from an invoice or bank statement.

They may involve management judgement or estimation.

Examples include:

Auditors may assess:

Management should retain appropriate documentation supporting significant estimates and judgements.

Related-party transactions may require particular attention because of their nature and disclosure requirements.

Auditors may examine:

Businesses should maintain a complete list of related parties and reconcile related-party balances before the audit.

External confirmations can provide evidence directly from independent third parties.

Depending on the circumstances, auditors may request confirmation of:

Management may be required to facilitate the confirmation process by providing accurate contact details and responding to auditor requests.

Businesses should not assume that their own internal records will always replace external evidence where confirmation is considered appropriate.

Management explanations can be an important part of the audit process.

However, for significant matters, auditors generally consider management explanations together with other supporting evidence.

For example, if management explains that a large receivable will be collected, the auditor may consider additional evidence such as:

Businesses should therefore support significant explanations with appropriate documentation wherever possible.

If appropriate evidence is unavailable, the auditor may need to perform additional procedures.

This can result in:

In certain circumstances, limitations on available audit evidence may affect the auditor's ability to obtain sufficient appropriate audit evidence and may have implications for the audit report.

This is why maintaining proper documentation throughout the financial year is important.

Practical Audit Evidence Checklist

Businesses can use the following checklist to assess whether key financial information is adequately supported.

ZILE Global supports UAE businesses with financial audit, audit readiness and assurance services designed to help management maintain reliable financial information and supporting documentation.

Our approach combines technical audit expertise with practical understanding of the UAE business environment to help clients maintain reliable financial information, appropriate supporting evidence and a structured audit process.

Is Your Business Ready to Support Its Audit Evidence?

A successful audit depends on more than accurate numbers.

Financial statements need to be supported by appropriate accounting records, documentation and evidence that allow the auditor to perform the necessary procedures efficiently.

Strong audit evidence can help businesses:

ZILE Global can help you assess the quality and completeness of your audit documentation and prepare your business for an efficient and well-supported annual audit.